Challenging Market Weighs on Petra

RAPAPORT... Shares in Petra Diamonds slipped 16% in early trading Monday after the miner reported a net loss for the first fiscal half, and warned of operational problems that could affect annual production.

The company reported a net loss of $10 million for the period ending December 31, an improvement on its $57.9 million loss the year before. The loss was due to a decline in rough-diamond prices — which fell 10% on a like-for-like basis — brought about by a weak market.

Revenue at Petra dipped 6% to $193.9 million, as weak rough prices were compounded by lower-quality stones from the miner’s Finsch and Williamson deposits. The average price at Finsch slid 25% to $79 per carat, while at Williamson it dropped 17% to $184 per carat. The declines outweighed the $14.9 million in revenue Petra received for the sale of a 20.08-carat blue diamond from its Cullinan mine, the company explained. Production for the six-month period grew 3% to 2.1 million carats.

Petra warned that while it was currently on track to exceed its production guidance of 3.8 million carats, the company had a slower start to the calendar year than expected, particularly at the Cullinan mine. It also faced difficulties due to a pit slump at Williamson. The setbacks will force the company to rely heavily on fourth-quarter production to reach its guidance. Additionally, Petra faces the possibility of further power cuts in South Africa, which could affect diamond recovery, it said.

The company’s debt increased to $596.4 million, compared to $592.8 million on September 30. Last year, Petra launched Project 2022, a three-year plan to save $150 million to $200 million through cost-cutting techniques that will enable it to pay down its debt. However, the company’s savings have been hit by the weaker market, primarily due to the coronavirus outbreak that has caused a slowdown in rough buying. The miner has revised its forecasted savings for the year to $100 million to $150 million, and does not expect to see a significant reduction in its net debt this year, it noted.

“While the diamond market stabilized towards the end of the period and provisional results show that pricing was up marginally at our first tender of the third quarter, the optimism felt towards improved market conditions has been eroded by the outbreak of the coronavirus in China and the consequent impact on consumer spending around Chinese New Year, as well as the short-term effect on diamond trading,” the company said. “Activity across the diamond pipeline is therefore expected to reduce until the virus is brought under control.”